LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT OFFICE & INDUSTRIAL MARKETS

Transcription

1 LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT OFFICE & INDUSTRIAL MARKETS ISSUE # 014 Q2 2018

2 One of the core principles of the Lehigh Valley Economic Development Corporation (LVEDC) is to serve as the leading source of economic data and market intelligence on the Lehigh Valley s economic assets and resources to serve our economic strategies, marketing efforts, and the needs of our stakeholders. To that end, LVEDC prepares a series of quarterly reports about the real estate climate in the Lehigh Valley. This report focuses on the region s office, industrial, and flex markets. CURRENT CONDITIONS The Lehigh Valley s industrial market now exceeds 120 million square feet as of the second quarter of The region has seen 2.57 million square feet in deliveries to the industrial market so far, and another 3.44 million square feet are currently under construction. Overall industrial vacancy rates in the region held steady at 6.5 percent. While much public focus on commercial real estate development has been on large industrial buildings, out of 1,838 industrial buildings in the Lehigh Valley, only 89 buildings or about 5 percent are larger than 300,000 square feet. Only three industrial buildings larger than that size have been added so far in 2018, and only four were added in the entire year These buildings, modern centers of distribution, fulfillment and manufacturing in the Lehigh Valley, have a real estate tax revenue potential of $46 million. The office market of the Lehigh Valley has also continued to show growth, having reached 26.8 million square feet as of Q There have been 281,250 square feet of office market deliveries in 2018 so far, and another 295,000 are currently under construction. Overall regional vacancy rates in the office market are 8.2 percent. The majority of new office space construction in the Lehigh Valley is taking place in the region s urban centers. Ninety-six percent of the office buildings constructed in 2018 so far have been built in either Allentown, Bethlehem, or Easton, and all of the 295,000 square feet of office space currently under construction are in the cities. The Lehigh Valley s unemployment rate as of May 2018 has dropped to 3.9 percent, compared to 5.0 percent a year earlier. That is roughly consistent with the national unemployment rate of 3.8 percent, and lower than the Pennsylvania rate of 4.5 percent. The Lehigh Valley is the 65th largest economy in the United States, with an economic output of $39.1 billion that is larger than the states of Wyoming ($38.5 billion) and Vermont ($31.5 billion), as well as 108 other countries in the world. Jarrett Witt LVEDC Director of Business Development BROKER PERSPECTIVE The Lehigh Valley continues to be one of the most desirable real estate locations in the U.S. for institutional capital and corporate tenants alike. Tenant demand remains strong as evidenced by over 4 million square feet of year-to-date leasing activity. Meanwhile, the capital markets have set new records with recent trading at mid-4 percent cap rates and stabilized building values at +/- $130 per square foot. These dynamics combined with further increased barriers to entry for new development have resulted in more focus on the redevelopment of older, infill, industrial real estate. Gerard Blinebury Executive Managing Director, Brokerage Services at Cushman & Wakefield 2 COMMERCIAL REAL ESTATE REPORT Q2 2018

3 Lehigh Valley SNAPSHOT: INDUSTRIAL MARKET MARKET SUMMARY The Lehigh Valley s industrial property market exceeds 120 million square feet as of Q Million Total Inventory (SF) 1 Million Net Absorption (SF) $5.76 Average Asking Rent (NNN) 3.4 Million Total Under Construction (SF) 6.5% Total Vacancy 755, Net Absorption (SF) 5.9% YOY Rent Growth 2.6 Million YTD Deliveries (SF) SUPPLY & DEMAND (SF) ASKING RATE (PER SF) 887K 969K 1,286K 1,364K 1,551K 1,016K 1,027K $5.63 $5.78 $ K 367K $5.44 $5.47 Q Q Q Q Q Combined Space Q SQUARE FEET Q Deliveries Q Absorption -272K Q Q property rents increased by 5.9 percent in the past year. $ INDUSTRIAL BUILDINGS (OVER 300,000 SF) Buildings of over 300,000 SF make up 4.8% of the Lehigh Valley s total industrial buildings. 1,838 Buidings Under 300,000 SF 1,749 Over 300,000 SF 89 Buildings >300,000 SF added since 2014 CURRENTLY UNDER CONSTRUCTION $46 million 1 Real estate tax revenue potential of buildings over 300,000 SF 1 Based on assessed values of land and buildings, excluding effects of tax-abatement programs Sources: CoStar, Lehigh and Northampton County Assessment Offices, and LVEDC Research COMMERCIAL REAL ESTATE REPORT Q

4 Lehigh Valley SNAPSHOT: OFFICE MARKET MARKET SUMMARY The urban centers of the Lehigh Valley are driving office space construction in the region Million Total Inventory (SF) 157.9K Net Absorption (SF) $14.59 Average Asking Rent (NNN) 295K Total Under Construction (SF) 8.2% Total Vacancy 152.6K 2017 Net Absorption (SF) -4.9% YOY Rent Growth 281.3K YTD Deliveries (SF) SUPPLY & DEMAND (SF) ASKING RENT RATE 276.7K 328.1K 269.8K $18.36 $18.12 $18.60 $17.54 $ K 115K 157.9K $15.31 $15.37 $15.80 $14.31 $ K -5.3K Q Q Q Q Q REAL ESTATE CLASS A COMBINED Q SQUARE FEET -114K Q Q Deliveries Absorption Q Q Lehigh Valley office rents decreased slightly $ year over year. URBAN OFFICE SPACE Allentown Bethlehem Easton Buildings Space 5.1M SF 3.1M SF 1.1M SF Occupancy 87.2% 95.6% 96.5% Average asking rent $11.16 $14.04 $11.52 Office Space Added in Lehigh Valley % in SF urban centers Under Construction 295, % 2018 YTD 281,000 96% ,000 4% ,000 18% ,000 93% ,000 82% Includes ZIP Codes 18101, 18102, 18015, and Sources: CoStar, LVEDC Research 4 COMMERCIAL REAL ESTATE REPORT Q2 2018

5 BROKER PERSPECTIVE Allentown s NIZ continues to fuel construction and leasing activity in the Lehigh Valley, especially as overall Class A office conditions remain relatively tight. We expect the market to remain landlord favorable for high quality, well-located assets, especially as economic expansion continues nationally and the industrial and logistics market focuses the national spotlight on the region. Lauren Gilchrist Senior Vice President, Senior Director of Research for Philadelphia, JLL COMMERCIAL REAL ESTATE REPORT Q

6 Q COMMERCIAL REAL ESTATE TRANSACTIONS NOTABLE SALES PROPERTY BUYER SELLER SALE PRICE MUNICIPALITY CLASS Brodhead Road IPT Brodhead DC LLC Brodhead Holdings LP $14,800,000 Bethlehem Twp. 95 Highland Ave. DLP Lehigh Valley Building LLC Highland Plaza LLC $6,457,500 Hanover Twp. (Northampton) Office 4631 S. Church St. HRS Properties LLC Air Products $2,500,000 Whitehall Twp S. Cedar Crest Blvd Yasin Khan Robert E. Cloonan $1,900,000 Salisbury Twp. Office 1815 Schadt Ave. Schadt Avenue Associates LLC Sarah A. Perrotta and Katherine A. Steciw $1,600,000 Whitehall Twp. Office 1002 MacArthur Rd. Whitehall Sunrise LLC Protica Inc. $1,585,000 Whitehall Twp. 3045, 3065 Avenue B Barrow Street LLC Pendleton Associates Ltd. $1,557,500 Bethlehem Office 2100 Union Blvd. Macritchie Storage LLC A-Treat Bottling Co. $1,400,000 Allentown 211 Lloyd St. Lloyd Street Associates LLC Estate of Howard John Krapf $1,050,000 Hanover Twp. (Lehigh) NOTABLE LEASES PROPERTY SF LANDLORD REPRESENTATIVE TENANT MUNICIPALITY CLASS 9611 West Hills Court 336,000 CBRE NFI Weisenberg Twp VanBuren Rd. 242, Hamilton St. 221, Union Blvd. 84,607 Cushman & Wakefield City Center Allentown Brixmor Property Group iherb Palmer Twp. ADP Allentown Office Aetna Bethlehem Office 2120 Spillman Dr. 80,000 CBRE Alpla Inc. Bethlehem 8014 Blvd. 37,000 Liberty Property Trust Feather River Doors Upper Macungie Twp. 997 Postal Rd. 24,020 Lehigh- Northampton Airport Authority Hanover Twp. (Lehigh) 1830 E. Race St. 21,638 NAI Summit New Castle Building Products Hanover Twp. (Lehigh) Source: Lehigh and Northampton County Real Estate Tax Records, LVEDC Research, CoStar 6 COMMERCIAL REAL ESTATE REPORT Q2 2018

7 We are fortunate the Lehigh Valley has seen tremendous growth in industrial development. In recent years, a large part of this has been driven by the growth of direct-to-consumer retail or e-commerce in the form of fulfillment centers and logistics and distribution operations. These centers are generically referred to as warehouses. In reality, there are very few true warehouses where inventory is merely stored in the Lehigh Valley. The new large industrial buildings are beehives of employment where goods are moved quickly in and out direct to consumers, stores or businesses. They are providing more than 30,000 jobs today most of which with have a starting minimum wage of $15 per hour. Don Cunningham President & CEO, LVEDC Lehigh Valley ECONOMIC CONDITIONS POPULATION GROWTH ( ) AGE DISTRIBUTION Lehigh and Northampton are two of only 19 Pennsylvania counties to experience population growth from 2010 to County Rank Growth Lehigh 3 of % Northampton 13 of % Source: Census Bureau, American Community Survey 2017 Population Estimates and Pennsylvania State Data Center Percentage of population < % 26.0% % 24.5% % 29.2% > % 20.2% Source: Census Bureau, American Community Survey 2017 Population Estimates COMMUTING PATTERNS UNEMPLOYMENT RATE 91, % 6.0% 186, % 99, % 4.5% 3.9% 3.8% Live and work in Lehigh Valley Live in Lehigh Valley, work elsewhere Work in Lehigh Valley, live elsewhere Source: Census Bureau, Center for Economic Studies 3.0% May-13 May-14 May-15 May-16 May-17 May-18 Lehigh Valley Pennsylvania United States Total nonfarm, Seasonally-adjusted figures. Source: PA Dept of Labor and Industry COMMERCIAL REAL ESTATE REPORT Q

8 Our Mission The mission of the Lehigh Valley Economic Development Corporation is to market the economic assets of the Lehigh Valley and to create partnerships to lead the recruitment, growth, and retention of employers. Our Vision Our vision is of a diverse Lehigh Valley economy that provides economic growth and opportunity for people of all skills and education and strengthens all our cities, boroughs, and townships. Our Priorities Market the economic assets of the Lehigh Valley Recruit companies in targeted economic sectors Support the growth and retention of new and existing employers Promote and coordinate a skilled and prepared workforce Provide intelligence and data on the Lehigh Valley economy Expand public and private LVEDC investment and build partnerships for economic growth 2018 Lehigh Valley Economic Development Corporation. All Rights Reserved LVEDC Commercial Real Estate Report designed by Michelle Chrin. Lehigh Valley Come here. Start here. Grow here Avenue C, Suite 200 Bethlehem, PA Phone: Fax: